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Fortress to retain 100% ownership of the PnP super distribution centre at Eastport Logistics Park

Eastport Logistics Park

Fortress Real Estate Investments Limited will retain 100% ownership of its new 164 000m2 super distribution centre for Pick n Pay at Eastport Logistics Park.

The initial agreement would have seen the retailer purchase a 60% undivided share in the distribution centre through a separate special purpose company with Fortress retaining a 40% undivided share. Pick n Pay would then have entered into a lease agreement with the co-owners with rental payable based on an initial 7% yield on total development cost. The parties initially agreed to a lease term of fifteen years with an escalation of 6% per annum with reciprocal put and call options, on different dates, over Fortress’ 40% undivided share.

The details of this transaction have subsequently been amended and will now see Fortress retaining 100% of the asset with Pick n Pay paying rental based on an initial yield of 8.5% on total development costs from the 1st of June 2023. The current estimated total cost of the development, including capitalised interest, which will be determined once the final accounts have been received and settled, is approximately R2.13 billion and in line with initial cost estimates.

The initial term of the lease will remain at fifteen years with a 6% per annum escalation and the reciprocal put and call options will no longer be in place. Pick n Pay will retain a right of first refusal on any potential disposal of the asset outside of the Fortress Group.

As such, Fortress will not receive a cash payment of R1.3 billion from the sale of 60% to Pick n Pay under the original agreement. However, Fortress’ loan-to-value ratio (LTV) is expected to remain at approximately the same level of 37.5% reported as of 31 December 2022.

Eastport Logistics Park offers great vehicle accessibility and visibility, situated adjacent to the R25 off ramp of the R21 Albertina Sisulu Freeway. Demand for logistics space in the node remains strong as it offers visibility and access to tenants. Eastport is centrally situated to all markets in Gauteng. Routing to and from these markets can be done through by various routes presenting vehicles with options to minimise drive time and avoid traffic.

The Pick n Pay distribution centre is situated in the north-eastern part of Eastport Logistics Park, with its own access off the R21 Expressway. The distribution centre will house groceries in an environment of approximately 95 000m² and cold storage of approximately 48 000m². The remainder of the space comprises returns, offices, gatehouse, and aerosol storage.

Pieter Boon, the CEO of Pick n Pay, said that this new distribution centre “will help Pick ’n Pay deliver key logistics and supply chain innovations, achieving efficiencies and growing market share at a time when faster and cheaper service of our stores has never been more important to deliver on our customer promise of low prices and reliable service.”

Pick n Pay’s decision to amend the nature of its financing decision was driven by the company taking a more prudent approach to its capital investment, partly driven by the impact of load shedding costs on the business. By concluding this agreement with Fortress, Pick n Pay can deliver all the operating benefits associated with their move to Eastport, while being able to focus their capital investment on customer and sales growth through new stores and store refurbishments.

This building is the largest single-phase warehousing development in South Africa, and we are very proud to own this asset as part of our logistics portfolio,” commented Steve Brown, CEO of Fortress.